Working capital

Working capital is current assets minus current liabilities — the cash and near-cash a business has available to fund its day-to-day operations after accounting for what it owes in the near term. Current assets include cash, accounts receivable, and inventory; current liabilities include accounts payable and other obligations due within a year.

It is read straight off the balance sheet. Positive working capital means current assets exceed current liabilities — the business can cover its short-term obligations from short-term resources. Negative working capital means the opposite, and is a warning that near-term bills may outrun near-term cash.

A business can be profitable and still run short of working capital — profit tied up in unpaid receivables or inventory isn’t cash you can use to make payroll. Working capital is the question lenders, investors, and owners ask about survival in the next few months: can the business pay what it owes as it comes due? It is one of the most-watched signals of short-term financial health.

It is only meaningful if the books are accurate. An AR balance for invoices already paid, payables entered twice, or inventory that’s wrong all skew the figure — which is why reconciled current accounts matter, and why interpreting working capital and managing it is a core advisory conversation.